Plug Power Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Unaudited consolidated results. Plug Power focused primarily on GenDrive hydrogen fuel-cell systems for material-handling equipment.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $4.63 million | $4.78 million | $18.57 million | $20.19 million |
| Operating loss | $8.00 million | $11.78 million | $21.00 million | $27.13 million |
| Net loss attributable to company | $15.90 million | $10.33 million | $33.79 million | $23.39 million |
| Net loss attributable to common shareholders | $15.95 million | $10.33 million | $33.86 million | $23.39 million |
| Basic and diluted loss per share | $0.19 | $0.27 | $0.51 | $0.71 |
| Net cash used in operating activities | Not presented quarterly | Not presented quarterly | $17.94 million | $15.55 million |
Gross loss was approximately $3.92 million in Q3 and $8.10 million for the nine-month period, equivalent to gross margins of approximately negative 84.6% and negative 43.6%, respectively. The filing reports no positive gross profit; the calculations use total revenue less product/service and R&D contract costs.
At September 30, cash and cash equivalents were $10.96 million, restricted cash $0.50 million, working capital $14.58 million, and total liabilities $35.36 million. Total assets were $40.03 million. Current liabilities were $12.57 million. The former $15 million Silicon Valley Bank facility expired in March 2013; its $3.38 million outstanding balance was repaid in January. The balance sheet reported $2.51 million of finance obligation, $1.47 million of capital-lease obligations, and a $12.90 million common-stock warrant liability. Accumulated deficit was $820.51 million.
Changes versus comparable periods
- Q3 revenue declined 3.1% year over year; nine-month revenue declined 8.0%. GenDrive shipments fell to 155 from 186 in Q3, and to 639 from 873 for nine months.
- Operating loss improved in both periods, reflecting lower costs, including reduced R&D and SG&A expenses and the absence of the prior-year $3.3 million GenDrive warranty charge.
- Net loss worsened despite improved operating results, principally because the warrant-liability fair-value charge was $8.21 million in Q3 and $16.17 million for nine months, versus gains of $1.43 million and $3.73 million in the comparable 2012 periods. This noncash valuation change was tied primarily to the share price and volatility.
- Nine-month operating cash use increased to $17.94 million from $15.55 million. Financing activities provided $16.38 million, including equity and warrant proceeds; investing activities provided $3.15 million, mainly from the HyPulsion stake sale.
- Cash rose from $9.38 million at December 31, 2012, while working capital increased from $6.90 million. Common shares issued rose from 38.4 million at year-end to 102.6 million at September 30, following offerings and warrant exercises.
Outlook, risks, and unusual items
- Management expected approximately $20 million of operating cash burn for fiscal 2013, revised, and said available liquidity was expected to fund operations into the second quarter of 2014. This estimate depended on sales, cost, cash-burn assumptions and potential financing; the company had no commitment for additional funding.
- The filing states that Plug Power expected continuing net losses and negative operating cash flows. Its ability to continue as a going concern depended on future funding, order and shipment growth, and profitable performance of after-sales service obligations. Management warned that failure to obtain funding and improve operations could require reducing or ceasing operations or seeking bankruptcy protection.
- In 2013, the company completed public offerings, exercised warrants and received a $2.6 million Air Liquide preferred-stock investment. Air Liquide also acquired an additional 25% of HyPulsion for approximately $3.3 million; Plug Power retained 20% and agreed to provide engineering services. Equity financing creates dilution risk.
- Air Liquide’s Series C preferred stock carries an 8% annual dividend, senior liquidation rights, conversion and anti-dilution provisions, and board-designation rights. The filing reports $69,211 of preferred dividends declared for the nine-month period.
- The March sale-leaseback of the headquarters was accounted for as a financing because of continuing involvement. It includes a 15-year lease and $0.50 million of restricted cash securing letters of credit.
- Management cited risks including customer and shipment concentration, product acceptance and reliability, warranty/service costs, manufacturing margins, access to capital and potential Nasdaq delisting. Five customers represented 80.6% of accounts receivable at quarter-end; three customers represented 38.6% of nine-month revenue. The company reported prior GenDrive component-quality issues and continuing retrofits.
- Most federal and state net operating loss carryforwards were subject to ownership-change limitations; the filing estimated that all but approximately $21.3 million would expire before use. Disclosure controls were deemed effective, and no material change in internal controls was reported. No legal proceedings were listed.
Important facts for investors to verify
- Whether cash burn and working-capital needs remain consistent with management’s projection of liquidity into Q2 2014, and whether a new credit facility or other financing was secured.
- Subsequent GenDrive shipments, customer orders, revenue recognition, realized gross margins, and progress reducing product and service costs.
- Warranty claims, retrofit completion, reliability trends, and the adequacy of the warranty reserve.
- The potential dilution and cash implications of outstanding warrants and preferred stock, including warrant-liability remeasurement and preferred dividends.
- Customer concentration, HyPulsion performance and economics, and the terms and obligations associated with the headquarters financing and lease.